Could The Market Be Wrong About Dekon Food and Agriculture Group (HKG:2419) Given Its Attractive Financial Prospects?

Dekon Food and Agriculture Group (HKG:2419) has had a rough three months with its share price down 21%. However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. Particularly, we will be paying attention to Dekon Food and Agriculture Group's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Dekon Food and Agriculture Group is:

39% = CN¥3.8b ÷ CN¥9.6b (Based on the trailing twelve months to June 2025).

The 'return' is the profit over the last twelve months. One way to conceptualize this is that for each HK$1 of shareholders' capital it has, the company made HK$0.39 in profit.

Check out our latest analysis for Dekon Food and Agriculture Group

What Is The Relationship Between ROE And Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Dekon Food and Agriculture Group's Earnings Growth And 39% ROE

To begin with, Dekon Food and Agriculture Group has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 9.6% the company's ROE is quite impressive. As a result, Dekon Food and Agriculture Group's exceptional 26% net income growth seen over the past five years, doesn't come as a surprise.

Next, on comparing with the industry net income growth, we found that the growth figure reported by Dekon Food and Agriculture Group compares quite favourably to the industry average, which shows a decline of 1.7% over the last few years.

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Dekon Food and Agriculture Group's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Dekon Food and Agriculture Group Making Efficient Use Of Its Profits?

Dekon Food and Agriculture Group's three-year median payout ratio to shareholders is 9.1%, which is quite low. This implies that the company is retaining 91% of its profits. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

While Dekon Food and Agriculture Group has been growing its earnings, it only recently started to pay dividends which likely means that the company decided to impress new and existing shareholders with a dividend. Looking at the current analyst consensus data, we can see that the company's future payout ratio is expected to rise to 3,221% over the next three years. Consequently, the higher expected payout ratio explains the decline in the company's expected ROE (to 23%) over the same period.

Summary

Overall, we are quite pleased with Dekon Food and Agriculture Group's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. On studying current analyst estimates, we found that analysts expect the company to continue its recent growth streak. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.